Earnings Call: Q1 2021

May 7, 2021

Good morning, ladies and gentlemen, and thank you for waiting. Welcome to Banco DO Brasil's First Quarter 2021 Earnings Conference Call. This event is being conducted in Portuguese with simultaneous translation into English and is being recorded and broadcast live via webcast website at www.bb.com. Brir, where the presentation is also available. All participants will be in listen only mode. And right after the presentation, we will initiate the Q and A session when further instructions will be provided. Questions in English will be received in writing only via the chat icon in the bottom of the platform. And for questions in Portuguese, just dial star 1. Please dial star 0 to reach the operator. With us today are Mr. Fausto Ribeiro, CEO Mr. Ricardo Forney, CFO, Financial VP and IRO and Mr. Carlos Renato Boneci, Head of Investor Relations of Banco DO Brasil and Daniel Maria, Head of Investor Relations. Mr. Fausto Giberi, please you may proceed. Ladies and gentlemen. Good morning to those who are in the South hemisphere. Those in Europe, good afternoon. I am Fausto Ribeiro. I am the CEO for Banco DO Brasil, and it's a great pleasure for me to be with you this morning. In fact, this is our first meeting, and I hope this is the first of many. And right from the start, I would like to acknowledge the work that you do. And it's very important that we take precise information to all of our stakeholders. I would also like to take this opportunity to thank our employees for The brilliant work they did this Q1 which allowed us to reach record numbers, historical numbers considering all of the past history of the bank. Well, I have a set of slides before I give the floor to Ricardo Forney, our CFO. These are interesting slides even because They can give you some information about the main pillars of this management. So let me start very briefly speaking about our earnings highlights. On Slide 1 sorry, Slide 2. Here, we have adjusted net income of $4,900,000,000 which accounts for a growth of 44.7% when you compare the Q1 of 2020. This result was mainly boosted by lower ALL and growth in the financial margins. I said that in our previous meeting, the year started with a rebound of the economy. However, the landscape for the next coming quarters Still brings some uncertainties, and that's why we are optimistic, but at the same time, a bit more cautious. In terms of the guidance, existing guidance. We are keeping the current guidance. We also see the possibility of by the end of the year to be on the higher side. Our loan portfolio was BRL758,300,000,000 and this as growth of 4.5 percent when we compare to the same period of 2020 in March. Our ALL Expanded View. It's DKK2.5 billion, which is a reduction of DKK54.2 billion when we compare to the Q1 2020. In terms of the dynamics of revenues expenses, NII grew 4% and our admin expenses were down by 0.4%. So now I would like to show you some more slides where I'll talk about the main pillars of this management. Now moving to Slide 3, I think. For those of you who are following us, we start with the pillars of our corporate strategy. So what is my takeaway message? There is a very sound governance process that is very well consolidated at Banco DO Brasil. This is a process that has been forged through many years. And the main pillar, lies in the design and the approval of our corporate strategy for Banco DO Brasil. We conduct annual reviews, but it covers a period that goes from 2021 to 2025, and that takes into account all of the outlook, clients, the financial side, processes and people. So what is the message I would like to convey to you today? Well, the bank has a corporate strategy that has been designed based on its corporate scope. And it's important to say that our role as executives, those of us who came on board more recently. Our task is to execute this strategy. Any changes in our corporate strategy has to go through all of the strategic and governance committees of the bank. In fact, We are just continuing to pursue or to follow this existing process that will allow us to read some very interesting results in the near future. Well, upon my arrival, I talked to the employees of Banco DO Brasil. Not only I had to introduce myself, introduced my family. I talked a little bit about my background and I also listed 10 structuring initiatives. And all of these initiatives are based on the pre existing corporate strategy. And I believe that these initiative, which helps us expedite some changes within the bank, which will allow us to reach a series of strategic objectives that have been set forth. I am not going to mention each one of them because you have been listed on this slide. But in the next three slides, I will show you in 3 different groups how we or What would be the main messages we wanted to convey to you today? So the first group or the first one is profitability. Here, the main message I want you to get is that with our search for efficiency and also the fact that we want to present sustainable results. We already have expense reduction plan in progress that anticipates a recurring savings of BRL 3,000,000,000 a year, which by 2025 could reach $10,000,000,000 of accumulated savings. So this is a commitment that has been renewed, and we will pursuit. In terms of looking for a profitability similar to our peers and at times even higher than our peers, we have to strengthen our most profitable business lives, expanding and monetizing the customer base. The expansion of the customer base is crucial. There is no other way we have to make progress in this regard. We will also reinforce our protagonist in some lines and segments where today we are and we have been market leaders and I'm referring to agribusiness. We have to make advances in agribusiness. We have to also include some digital initiatives to agribusiness, SMEs, individuals and foreign trade. These are some segments where we think we have to expand. We also need and we think it's important to constantly analyze the possibilities of building strategic alliances and partnerships because this can help us maximize our results. So we have to keep an eye on that all the time and see ways of engaging in other partnerships, and this will help us to leverage better results. And Finally, we have to focus on our core business to maximize capital efficiency. Maybe Behind that, we have the continuity of our divestment policy. So obviously, focusing in the non core businesses or things that do not have great synergies with our business. Now moving to next slide, Slide 5. Another group of actions, which are equally important when compared to the previous one is I mean, if I want to leave a legacy to this company, what I would really like to do is to expedite digital transformation so that we can, in fact, be really digital. This is a message that I've been constantly talking about in the company because it is important that we expedite this transformation. This is something that the market is calling for. And it's important that we are totally digital. We have been trailing this path for quite some time, but if we can accelerate the necessary transformation, this can certainly help us. And as part of this process of expediting the digital transformation, we listed a series of actions that will Encourage our clients to look for alternatives to access the bank in a more convenient way. So we are trying to promote a digital inclusion. This is one of our commitments. Also, we have to engage our own staff and our own employees. That's also very important. We have to promote a change in the internal culture, bringing about the necessary skills that will allow us to evolve quicker through this new culture. It's important also to emphasize that we have to train and qualify our people so that they can acquire the skills that maybe they do not have yet because certainly this can help us expedite the process. Health data intelligence. It's important that we anticipate the needs of our clients, trying to focus on information and data, so data can be transformed into good information. We have an information repository, which is very vast and we have to connect that with the Internet and other consumer means. We have to be able to use this data and turn them into valuable information to generate more business. In terms of business connection, Open Banking brings an amazing window of opportunity that also reflects an innovation because with innovation, we can look other alternative sources of income to our business. In addition to that, we will be able to analyze some strategic partnerships with startups to expand our presence in other platforms where we are not yet present. And certainly, the way to reach this goal is to develop all of our APIs because with that, we'll be able to make good connections. Now platform expansion, we want to automate processes. There is always room for further improvements and better efficiencies, and this is one of the paths that we will pursue. We also want to modernize our IT structure to be more competitive and ready to do what is important. So These are my main messages and the main points that I want you to focus. We want to expedite our digital transformation to be indeed totally digital. Now moving to Slide 6, As important as the other previous slides, I call this part proximity. We have to be very close to our stakeholders. And I am saying that it's important that we'll be close to our clients so that they can make their own decisions in terms of what channel they want to use to communicate with us. One bank for each client. If they want, they will have the bank the palm of their hand, they will have all of the necessary channels to establish a connection to talk to their account manager. In fact, it's important that we promote an integrated management of the distribution network, a more omnichannel based view to be able to offer a very integrated view to our client. Also, it's important to appropriate to have the appropriate returns to our shareholders. We have to look for growing efficiencies and to be compatible with our peers. We want to compete on equal footing with all of our peers. And oftentimes, we want to be ahead of the curve. We also want to maintain an adequate level of corporate governance. And as I mentioned before, this is something that has been part of the bank strategy for quite some times and we are a reference market even in Brasilia with so many public agencies, other organizations that do their benchmark with us. Therefore, I would like to say that we Want to continue to keep a very high level of corporate governance, and we value people as well. And here, I'm talking about talent attraction and retention. I said previously that we have to have all the necessary skills to be able to anticipate trends. We will invest a lot in training. We will also make some investments to train and qualify our leading young and we also want to keep our commitment with sustainable. These actions actions important for us to fulfill our social role and at the same time to be accountable to society in general. And an example of that is that May is the month that we call the Sustainability Month, and we picked a theme, which is renewable energy. During this month, we are offering our clients some unique credit lines with better rates for the acquisition of solar panels, etcetera, allowing them to invest in clean energy. With that, we will be paying our contribution to society and the planet. My last flight. And then I'll give the floor to Ricardo. This is the bank we want. This is our view for the future. So if I could tell you what is the legacy I want to leave, What bank I want to have in the future, I want to have I want to be the client's main bank, ensuring The best experience possible that he can choose or she can choose the best way to communicate with the bank. We want to provide a unique experience, high quality, high availability and that the client can promote a bank to other clients. In terms of our presence, Whether it's a physical presence or digital, we want to be anytime, anywhere. This is very important to us. Also, we want to be a solutions hub. We have a platform that provides products, services and benefits. So somehow, we want to help our clients to have access to all of our products and services so as to maximize return. And in general, also sustainability is very important path to conciliate economic results, environment preservation and development of society. Today, we are considered to be the bank with the most sustainable portfolio in Brazil. We received several awards. Our portfolio has more than $200,000,000 in sustainable credits. And more recently, we received an award, and this is first hand news. We just received an award from Global Finance as one of the most sustainable companies, one of the most companies in terms of processes and this is something that we will announce to everyone in the market. So with that, I will turn the floor over to our CFO, Ricardo Foni, who will talk about the financial results. And after the end, I will be available to answer all of your questions. Thank you very much. Thank you, Fausto, and first of all, good morning, everyone. My name is Jisca Du Forney. I am VP for Financial Relations and Investor Relations. I would like to thank you very much for joining us today and the opportunity to present to you this very robust results. This is an all time record for the bank. So I'll start with Slide 9, where we talk about our adjusted net income that posted growth of 44 0.7% over the Q1 of 2020 33% over Q4 of 2020, reaching BRL 4,900,000,000 in the quarter. This net income was mostly impacted by lower ALL in the period, the growth of our loan portfolio and a very rigorous control of expenses. Sales. Our ROE went from 12.4 percent in the Q1 of last year to 15.1 which is 158 basis points increase for ROE. Moving to Slide 10, I will talk about NII. NII was up 4% visavisQ1 2020 and 2.8% in the quarter. This annual growth is mainly explained by the reduction in financial Bences. 26.7 percent reduction in commercial funding and minus 17.6 percent in institutional funding. When compared to the Q1 of 2020, the margin growth was influenced by higher loan financial expenses benefited by a more profitable mix of assets and lower funding costs. Banco DO Brasil continues to pursue higher revenues from loan operations for NII by increasing the loan portfolio and looking for a more profitable asset mix. NIM remained stable ending the period at 3.7% due to higher volume of net assets. Moving to Slide 11. Our loan portfolio. The expanded loan portfolio grew 4.5 percent year on year and 2.2% when compared to December 2020, totaling BRL758.3 billion with emphasis on the performance of the retail lines in agribusiness. The individuals portfolio was up 7.1% year on year and 2% when compared to December of last year, with emphasis on payroll loans. Another line that presented significant growth was personal loans resulting from the strategy to change the mix 2 more profitable lines. The agribusiness portfolio grew 6.4% year on year and 3.6% in the quarter, reaching $198,500,000,000 and getting closer to the all time record for Agribusiness. SME segment was up 26.1% year on year, influenced by disbursements in the Pernambi, working capital for the preservation of companies and PESE lines. This occurred especially in the previous quarters and The evolution from December to March is lower of 1.4%. For the Asian government, It was down by 1.2% year on year. Moving to the next slide. On ESG. Here, we talk about our sustainable business portfolio that posted TR 261 BRL0.3 billion in the quarter. Considering the 10 sustainability commitments that we announced in February and aiming at helping our clients to transition to more sustainable practices, We launched the BB Renewable Energy Loan for individuals 100 percent digital. Also through BBD PVM, We offered 2 ESG funds with total net worth of BRL4.1 billion. Furthermore, starting this year, we are mitigating all of our GHG emissions to ensure that all energy consumed in our facilities comes from a clean and renewable source with the acquisition of I RESC. Also, we have received several awards, as you can see in this slide. On the slide, this is the agribusiness portfolio. As we said before, growing 6.4% in the comparison year on year. In March 2021, we reached a disbursement of BRL 76,100,000,000 in the 2021 harvest plan with an increase of 14.7 percent visavis the previous year. I would like to draw your attention to our Broto platform. This is an end to end marketplace that brings maximum economic efficiency to producers With the increase in the number of accesses and new users besides intensifying sales and finance, we also realized Over BRL 347,000,000 since its inception on this platform, we have 549 products, machinery implements and financial products, materializing our vision about the future of the bank as a hub for banking and non banking solutions for our clients with convenience, practicality and safety and security. On Slide 14, We can see the forbearance portfolio flow. We can see that the flow of exit has already started in the forbearance portfolio with a good evolution in December 2020, 50% of operations were in grades. In March 21, the percentage is 23%, amounting to BRL 26,300,000,000, of which BRL 14,000,000,000 our government operations that have most of them a treasury guarantee and that's for therefore very low risk. In S90, in the forbearance portfolio is under control, closing March at 0.86% due to the quality of our origination of this portfolio. Here we have here showing that net of the government portfolio. The portfolio would amount to BRL 90,000,000,000 net of the government part of the portfolio And as it has a guarantee of the union, the risk profile is very low. And we have this exercise here that you can see on Slide 15. And the total of BRL 90,000,000,000 12.1 is still in Greece and about 7,100,000,000 maturity at the Q2 of 2019. With the reduction of the total balance in active operations in the forbearance portfolio, we would have 1.09% for the calculation of delinquency. And it's very important to show you this breakdown removing the parts of the government, which is very low risk. So expanded ALL on Slide 16, show you the expenses with provisions, closing the period with EUR 2,400,000,000, a 54.2 percent reduction year on year, EUR 50.8 quarter on quarter reduction behavior explained, maybe by the reduction from the credit risk AOL. Because during the last year, the bank made early provisions prudentially In order to buffer the future effects of the pandemic on the loan portfolio and also we have here the credit recovery performance, the highest Indu Series in the Q1. EBITDA of credit closed at 3%. Delinquency. As you can see, delinquency is rigorously under control. We have the indicators of the quality of the portfolio over 90 days past due with a slight increase quarter on quarter reaching 2.8 in March 2021 and between 15 90 days From 1.5% in December to 1.9% in March, the coverage ratio closed the quarter at a very high level, 228.2 percent information about the new NPL formation, 0.66% and coverage of the new NPL reached 73.6%. Fee income and administrative expenses on the slide. Fee income amounted to BRL 6,900,000,000 in the quarter, a 2.7% reduction year on year, impacted mainly by the reduction in the checking account line. It is important to remember that Banco DO Brasil has been seeking to diversify price revenues, intensifying the use of analytics to have a better knowledge of the client and their preferences and serving them in a more convenient fashion. Administrative expenses are under rigorous control with a reduction of 0.4% year on year amounted to BRL 7,700,000,000. Cost control already reflects the efficiency measures announced such as the layoff of employees by means of the voluntary Care Severance Plan and the savings generated by the compensation plan and the pro form a program among other aspects. Cost to income ratio accumulated in 12 months closed at 36.9%. In relation to integration of service, we have on Slide 19 the profile of our service network, which was adjusted in the period, aligned to the strategy of optimizing our channel platform, seeking lighter efficiency more efficiency and lighter structure. We see a reduction in the number of traditional branches as lights increase in digital specialized branches, the creation of 16 levy offices and showing an important adjustment in the cost structure of the bank, migrating towards more efficient structure, EBITDA producing the coverage of services to the community and we also increased the specialization with the opening of legacy offices and specialized agro branches that allowed us to increase 1,400,000 clients totaling 7,000,000 with specialized service. 800 investment professionals are dedicated to investors, and it is important to see that clients with specialized services tend to show higher satisfaction levels and a higher return to the institution. I would like to talk about the number of employees because we already see the impact of the reduction of $9,173,000 at the March, dollars 87,876,000 Most Of those that have that a growth in the plant have already left the company, but there are Still quite a number to go when they will be leaving the company. And digital in practice, We have relevant figures about the acceleration of digital transformation of Banco DO Brasil. We understand that the migration trend toward digital is here to stay and we have been offering end to end solutions and innovative solutions 2 almost 21,000,000 active clients in our digital channels. And I would like to mention the coupons available in our app where the client has the vouchers for discounts and promotions for reaching EUR 14,000,000 accesses in the Q1 of 2021 when we sold over 315,000 gift cards. We also have programs for the utilization of points with the relationship of the bank that can be used for products and services of the bank and also ability to pay accounts in a cash back program for clients according to what they choose. In the Q1 of Q1, 360,000 clients paid accounts or bills with the use of this functionality in a total of BRL 18,000,000, all this by means of the app or Internet Banking. Deals with clients by means of the app have been increasing significantly and digital platforms, Internet and mobile forms. Internet and mobile accounted for 45% of disbursements in personal loans, 12% in payroll deducted loans, 42% in auto loans and 20% in mortgage. And Over 90% of the transactions through digital platform in March and the Banco DO Brasil app is the one with the best evaluation among all the banks in the Apple Store and the Google Store as well. All these figures show that we are the right track for our vision of the future, positioning the bank closer and closer to clients with innovative solutions, bringing convenience with security. In relation to capital, we see a robust evolution of capital. As you can see, 19.56 common equity indicator 12.89 and this places us as one of the to the highest capitalization in the Brazilian market and with very big capacity to grow. In relation to projections, we bring you our guidance here. We are maintaining our guidance. Adjusted net income 16 to 2019, the result of the Q1 was BRL 4 point 9, Bilibria. Net interest income, 2.6% to 6.5%. We reached 4% loan portfolio from 8% to 12%. We were slightly below in the Q1 with 5.8%. Retail businesses from 9% to 13% we reached 11.6 wholesale, a reduction of 7.3%, and afterwards, we minus 1.5% to 1.5% positive. We had a reduction of 2.7%. Administrative expense of minus 1.5 percent to plus 1.5 percent, a reduction of 0.4% under rigorous control expanded ALL. We had eProvision of EUR 2,500,000,000. Overall, In terms of our net income, we see a skew of being at the higher area of the guidance. But we can go into details during the Q and A. With that, I conclude my presentation. And now we can go to the Q and A session. Thank you very much. Now we are going to start our Q and A session. I would like to remind you that questions in English will be answered by the chat that is to say received by the chat and for questions. Our first question comes from Mario Pier from Bank of America. You may proceed. Good morning, everybody. It's a great pleasure to be with you for the first time and congratulations for the results obtained in the quarter. Also, I'd love to hear you talk about the commitment on the part of the bank in terms of keeping the strategy that was announced in mid February, mainly in terms of improvement in your efficiency added cost to income ratio and the market loved that. And you mentioned that you to bring the profitability of the bank to the level of the peers. When you talk about profitability, Are you referring to the ROE? Because your peers have from 18% to 20% ROE. So is this your goal? And how long will it for you to get there. And the second question, when you talked about the focus on core business and investments and the investment policy. I would like to for you to expand on that Asset Management and Acquiring are in your core business and what is your strategy for these two segments? Thank you very much. Thank you, Mario. It's a great pleasure to talk to you. Okay. I will start with the last one about the core business and then we will come to the ROE. As far as I understand, you're asking about our DTVM, our brokerage house. And this is our core business as it is for any other company or any other bank. And we know that this area is going through many changes And we have already made some notices to the market and mainly because of some news published in newspapers and we have been studying this. What are the alternatives so that we may drive the business and maximize return to our shareholders. And one of the initiatives is to find strategic partners that might work with us and that might help us maximize our returns. Nevertheless, what I can tell you is the following. We still have no definition or mature definition about that and that we could announce to you right now. But we continue to study this and evaluating this evaluation, the best way to drive our business and to extend our operations in the assets area. With relation to Cielo, you talked about acquiring and Cielo is also considered as a core business for us in terms of acquiring. Referring to this asset, we have a strong partner and we are doing by means of corporate governance with Cielo so that our company may transform digitally so that we may change our business model in order to bring more results, more positive results for both companies. Show, which is also core, Chagros core as far as we are concerned. Regarding the return patience and mission that I received from the Ministry of the Economy and the President was to lead this bank seeking profitability at levels compared to our peers with a lot of efficiency and that we could give a top service quality top quality service to our population. And a timeline for that, I cannot tell you anything about that. The ideal thing would be to get there as fast as possible. And of course, we still have some homework to do. And as I said before during my presentation, we have many actions that have to be put in place in terms of our PPOP. And the more we can accelerate the process and speed up the process so that we may reach the level of our peers, that would be great. This could help us a lot. So I hope I have Been able to answer your questions. Thank you very much and very good luck to you in your new position. Our next question is from Mr. York serviceman, thank you very much for taking my question. Can you hear me well? Yes, very well. Thank you. Fausto, thank you for your message, and I really endorse the words of my colleagues. On the analysis side, We see how Banco DO Brasil is negotiating in view of all of these very strong operating results without a lot of interference. So if possible, I would like you to reconciliate some parts of your speech with what we see through the headlines. And you said, as an executive, the main message is to give continuity to what was done before. And we see that with very good eyes. But At the same time, there have been several changes since you took over. I mean, 4 VPs were changed, and maybe there are more changes to come. In regards to governance, When the Chairman of the Board, the previous Chairman of the Board. He criticized the governance of the bank. Now there has been an important change in the composition of the Board with message to the market or maybe reinforcing the message of how you see all of these changes, whether The strategic gear will change because with so many changes at the Board level and also on the executive level, I would like you just to put in context your legacy or what else could happen in terms of changes in the bank. I mean, some things are changing even though the backbone remains the same. So let's go with that and then I'll come with my second question. Thank you. Georges, if I understand your name correctly. Okay, there were many comments. Let me try to answer each one of them. First of all, changes in the VP positions. Well, my point of view is that as part of a natural succession process in a company, it's very common and very usual to have some changes. So I think All of the changes that we are promoting are absolutely normal. We are certainly looking for people in house from career professionals inside Banco DO Brasil with a lot of experience. All of the names have more than 25 years of experience in the bank, and they have they are highly competent. And if I should give you a message, if I could probably give you some light of what is happening here is that we are looking for Very committed professionals and with enormous capability to be in the positions where they are. And I think that it's very normal for Now in terms of what you said about the fact that some Board members complained when they left, What I've been saying is that my approval process as the CEO of the bank goes through 2 spheres, 1 inside Banco DO Brasil and 1 outside the bank. In terms of the outside sphere. I'm referring to appointments from the Ministry of Economics, which is ratified by the President of the country through a decree. So first of all, We have to send the names to our internal committee that has to evaluate a series of prerequisites, and they have to look at things related to legislation first, I mean, the last 303 and all of the other issues that are part of our internal bylaws. And That is then rectified by other instances. So the process follow its normal path. And that's how I was appointed. The same thing happened to all of the previous CEOs of the bank. All of them had to go through this process. In terms of particular opinion of 1 or another Board member, I mean, I would rather not comment because It's my own opinion. They were talking about a process that exists in the bank for a very long time. So anything that can help the bank improve its business is something that should be analyze. In terms of Iida, I think you mentioned her name. He is an excellent professional. We are constantly looking for diverse opinions in the Board member. She comes from the Ministry of Treasury. She has extensive experience. She has been through different boards. She has an interesting experience. Therefore, I believe that she will pay a very good contribution to Banco DO Brasil when it comes to analyzing further deals. So I think I answered most part of your questions. Did I leave anything else, York? No. Once again, I think that we support bank. And I think it's important that you have a very firm message when you conciliate all the changes with this line of continuity. You explained it quite well. Thank you very much for your presentation and I wish you the best. Now I have another question, but it's more operational. I think you're doing an excellent job in terms of controlling expenses, which is the core part. And you said that yourself and you said that the middle of the guidance is low, but I also realized that non core expenses. That part of non core expenses is slightly above what we fact that for the 2nd consecutive quarter, you had more than $1,500,000,000 of expenses with legal fees. And also this quarter, we noticed BRL 1,000,000,000 related to payroll. So we want to understand how that works. And I also want to get some to get your view on the legal risks and whether the guidance is still maintained. All right. I will turn the floor to our VP of Risk Management and he will help me with that answer. Okay. I will start by talking about the legal risk and then I'll turn the floor to Forney to add more things to that answer. In terms of legal risk, the bank has some strategies that aims at improving the trajectory of these legal expenses and some factors set the volumes you saw for the Q1. The first one has to do with the pandemic. I mean, last year, We saw mainly in the second and third quarter some of the actions were stagnated because The courts were shut down and that's why all of the lawsuits were postponed to the Q4 of the year and this had an impact on the Q1 of 2021. And because of that, either the volume of payments or provisions to be expedited a bit. Another important aspect is a strategy that we have adopted related to agreements. This It's a changing paradigm for us because the bank used to approach a strategy of appealing 2 or the last courts. And now we're adopting a mixed strategy, whereby we are favoring agreements right on the initial stages. This has a positive effect in the long run because it reduces long term expenses and things are more predictable. But there is another effect, which is the acceleration of expenses in the short run, meaning that The amount of payment is larger in a shorter period of time. This is what happened in this Q1 and this is a strategy that is now in place for the year. It does not apply only to the Q1. So these two effects can explain the amounts posted in the Q1. And this should also be noticed at different levels throughout the year. We are trying to project that expense and you said BRL4 1,000,000,000. We are looking at a number closer to BRL6.5 billion rather than BRL4 billion when it comes to accelerating agreements and unleashing processes or lawsuits in the courts. I would just like to add, Georg, this is Ricardo Forni, the CFO. I would like to add something in relation to expenses or other operating expenses. Here, we had an impairment related business funds. We try to identify a non financial asset that shows signs of depreciation because of the value in use that could probably indicate some reductions in the recoverable value of the asset. With the recent economic impact, there was an indication that there should be an impact about some payroll agreements considering the good accounting practices. That's why we did the impairment and we did the accounting write off. Now we recognized BRL 459,000,000 of losses because of that. And we believe, and just to clarify, when it comes to the evaluation about the recurrency or nonrecurrency of this evaluation. What we think is that in terms of the impairment, This is a recurring evaluation. This was a business event. And we are or We posted that. And with that, our future projections in regards to these contracts really reflects what remains in our accounting books. Perfect. I just wanted to understand whether we could still see something more along the road. There is something more to come. We do not expect anything else down the road. We are running that evaluation. This is a current evaluation. We will do that in the next quarter, but with no future expectation about that. Good morning and thank you for the question. We have already talked about the NPL19. We had a higher volume than private bank. Do you have any other data that you could share with us? In this quarter, the provisions were lower in the NPL formation. The interpreter apologizes, but the sound is very, very bad. Okay, Bonnacio is going to answer, but I would like to make a short remark about Over 75% of the operations extended RPAY Back Normally. This is excellent as a sign regarding the forbearance portfolio. And 90 days past due is under control and the level is better than we expected, around 1%. And Bonnichi, please. What have you talking about the forbearance portfolio. You remember that we closed the 4th quarter with EUR 130,000,000,000. I would like to remind you that this portfolio has some different characteristics vis a vis our peers. We have a relevant participation with the government in this portfolio. 20% of this is credit with the government and with a government guarantee. We have a major part, 25% of that is payroll deducted loans. And normally government sub, that is to say, public. And because of that, the quality is very good. About 93% of the customers Didn't have any history of delays in the 12 previous months, the month preceding the pandemic. So it's a very good performance and the time of relationship is quite long, 17 years on average with these customers. And we have a percentage of guarantees that is very big, 65% on average. And in the period of the Q4, we said that it would get into amortization as of the Q1, that is to say the portfolio. We had a reduction of 12.5%, the balance of this from $130,000,000 to $113,800,000,000 to $113,800,000,000 8. This already shows part of what we were already seeing in terms of quality and expectation of repayment, that is to say people paying us back again, and this has been done with a very low delinquency ratio. If you take the short term delinquency, we are talking about 2.5%. And if you talk about 90 days past due, it is lower than 1%. We have a percentage that is EUR126,000,000 will be returning in the second half but Q2. But of this 26, half of that is credit with government accounts. So the portfolio has a quality looking ahead, a quality that is very good and which leads us to believe that if everything remains the same in terms of the pace of the economy, The performance will be quite good in this portfolio and that has a coverage of provisions that is quite high as well. Talking about the level of provisions. What You saw in terms of flow and provision is reflecting the behavior of our portfolio, very low delinquency, EUR 1.95 billion. And it is a fact that we expect an increase of delinquency up to the end of the year or by the end of the year, this is something that we are projecting. Nevertheless, our projection is the base scenario base case scenario. It's better than we estimated at the end of last year. And because of that, we believe that this provision or the need for new provisions should follow a normal behavior And in line with the volume of disbursements that we will be making by the end of the year, we believe that disbursements will accelerate So this year end provisions will reflect the acceleration of these outlays. But talking about the inventory of our portfolio, this is very much under control and the additional provisions that we built last year support the growth estimate for delinquency for this year. This is Daniel Maria. I would like to remind you the dynamics of the balance sheet As we have been talking to you, 2020 basically, as Bonnetti said, the construction of provisions, that is to say, creating this buffer 2 headed 48% coverage. And for 2021, consuming part of this coverage and reducing provisions and gradually increasing delinquency. The fact that you have the coverage of the NPL At percentage is lower than 100%. This is the dynamics of this movement, and this is in line, as Vanessa said, with what we expected in this regard. Very clear. Thank you. Fedo Leduci from Itau BBA. Good morning, everybody. Thank you very much for the presentation. Thank you for the question. You made 2 opening remarks about the guidance. It seems that we are going toward the upper part of the guidance. And I would like to talk about the performance, Very low ALL, it seems to be the biggest contribution. However, In the other items, NII, it started well, 4%. But when you look It seems that it has part of funding and the Revenue with credit from clients, it doesn't go so much and Fee income, it seems to be at the upper part, and it's not really seasonality, I believe. And lastly, about illegal risks. Do you contemplate this when you talk about going to the upper part of the range. Once again, congratulations for the presentation. Okay, Fondi will start to talk about the components of the guidance, and then I will come back. Thank you, Pedro, for your question. In relation to the guidance and the adjusted net income, this is the aggregator of all the other facts that are going on in the different variables. We started very well in the Q1. And if we continue with these lines, as we expect, the economic scenario. While we are bullish about the economic scenario, however, there are uncertainties involved. So when we talk about the income. We believe that we are going to the upper part of the guidance. And looking ahead, I believe that later on we might review the guidance when we are more sure about some important variables. Regarding the MSD, we are in the middle of the guidance. We had an important evolution. I would say a change in the mix of the portfolio that has been happening and has been reflecting already. We're already capturing that over time and the strategy for the year is very much centered on seeking and being more competitive in lines with attractive returns, changing our mix over time. And we have been doing this and we have been very successful in this strategy. From the viewpoint of the loan portfolio, We are slightly lower than the guidance and there are some components there. In retail businesses, for instance, We are within the range. We have been working in Lines of payroll deducted very successfully also with good operations and even Exceeded the line of credit card coming from non account holders. And it took some time to scale, but we already see results. And we have been seeking this growth that together with the strategy of line with a high return, this becomes a very interesting component in the mix for the growth of the portfolio. In the wholesale or companies, these are specific cases. Well, let me see how. Daniel, can you help me here, please? This has a base effect. I would like to remind you that in the Q1 of last year, there was a higher demand And this increased the base for the Q1 and then it started going down as we are comparing Year on year, we have this effect and also the migration towards the capital markets. I would like to remind you that some companies went to the market with debt and equity. And when we look at this range of companies with over 200,000,000 In revenue, when I look at the large ones, over BRL 800,000,000 they are dropping because of the dynamic the capital markets and this is being offset by the large middle, the companies that have revenues up to EUR 300,000,000. It's a little bit Capital Markets and a little bit of the comparison base as well. Just continue here. In relation to agribusiness, we have been reaching the guidance and the PS, We saw a performance that was lower in individuals' tariffs, But we are optimistic because we are using analytics and many other tools and we are city to be more assertive in our sales by means of using data. And we still believe that we will be reaching the guidance and we are working very strongly in this direction and we believe that we will be able to get into the range. In administrative expenses, we have been reaching the guidance by means of a rigorous efficiency program that is already bearing fruit. And we know that there are some risks involved because of inflation. Inflation has been coming higher than estimated and also payroll expenses and other contracts as well. They suffer for this kind of impact. So Our efficiency program with reduction of expenses is what we will give us the right condition to reach the guidance. And in credit risk, based on everything that has already been said about delinquency, our Net provision is much lower than estimated in the guidance. And as Onetio said, We have to see the evolution of the portfolio in the second and the third quarters because many of our uncertainties will be solved. And what you have in terms of forbearance will be maturing to a certain extent in the second and the third quarters. And we are very bullish about the origination of the portfolio that was built for the future. So it is one indicator that has a lower bias. And as uncertainty disappears, we might have some change in the guidance Should this be necessary and just to complete VEREZY, the legal risk is already inbuilt in this new estimate in this projection that we talked about, about our net income. Okay? Thank you very much. A follow-up about the NII 4% year is quite satisfactory The mix has been improving, as you mentioned yourselves. And if we break down, What helped you were lower funding expenses. So could you help us about the funding expenses over the years. Should they go up? Because there was a help from abroad, the PDM that really brought this down. So what about the next remainder of the year? May I make a remark? The funding cost. I would like to remind you that we paid the perpetual at the end of the 4th quarter. The redemption was almost BRL1 1,000,000,000 and also in the Q1, there was another subordinated loan, about BRL800,000,000 that was paid. So you reduce your expenses in foreign currency. Together with that, What we foresee as a dynamic from now on, less contribution from the cost of funding, some contribution that could come from some renegotiations, but less contribution compared to what we saw in 2020 and much more based on the increase in the number, the portfolio and the mix in the portfolio mix. Thank you very much. Our next question is from Mr. Domingos Falavina from JPMorgan. You may proceed, sir. Thank you and good morning. First of all, I would like to thank you. Thank you for your remarks in the Q1 because I know that you haven't been there for a very long time. Well, sometimes we are at the mercy of the news and it's hard for us to understand the promotion of some of the executives. So probably better than trying to guess what the newspapers are trying to say, it's better also to talk to people involved. In Itau, there was a new CEO. He worked with Candido Brasher in the investment bank. He was then the CFO of the bank. Then there's Maputo, who also went to he worked for other banks. I mean, and your name and for us. I think we also look at some people that could potentially be promoted. And we didn't see your name in that list. So when they asked us about names, How can you explain why you are in this position? And my second question, I would say it's very good to see that the bank is focusing on profitability in ROE, and we see 3 leverages here, 3 pillars: growth, volume, price, cost and leverage. So do you think that this ROA will grow in the bank? So let's talk about Fausto. Fausto Ribeiro presided over a company from the conglomerate of Banco DO Brasil, BB Consortium. Company that in terms of results to the bank generate 7,000,000,000 in net income. And also, They pay an important contribution to our results. 33 years in Banco DO Brasil, I also Worked in several areas of the bank, and I can mention the area of internal controls. I spent 10 years in that position, And I was kidding. I said that sometimes this is my PhD in internal controls because I let the bank to comply with Sarbanes Oxley legislation. I was also chosen to represent the bank in the transaction chintamilla of the Patagonia Bank in Argentina. You know that the Argentinian Central Bank takes some time to approve the acquisition or any acquisition, and that's why we had to have a separate team, a separate team from the management of the bank. We were 3 people in charge. So then I was call to be the Director of the bank in that geography. And then I was in charge of doing large operations with large corporate. And when I returned to Brazil, I was in charge of the postal bank that serves low income clients. I also work in the channels area of the bank. But just to be clear, 33 years in the bank, vast experience with the bank, and the bank has in numerous qualified professions. As you mentioned yourself, many people leave Banco DO Brasil and they occupy no high positions in private companies like Santander and in other companies in the market. In terms of my arrival in this position, it started with the Ministry of Economics and then the President of the country and then I had to be approved by other internal instances. In terms of What was mentioned at the time, people said the press said that I didn't go through the evaluation methodology. I did go through the Korn ferry methodology. And I was on the 9th quadrant. If you understand about that methodology, that indicates the individual that is ready to take that position. So in terms of Fausto, this is what I had to tell you. So I I'm highly qualified. I have a longest experience with the bank. And I believe that those that are promoted From Incyte, they are much better prepared because they are very familiar with the way the bank works and they can also work to promote the acceleration of the bank and all of the pillars that I mentioned during my presentation, and that will help us to reach our results much quicker. So in this regard, I do respect any other dissenting opinion, but I mean, this is what I have to say. And in terms of our next question, I will give the floor to our CFO. Well, I'm not saying that they were dissenting opinions. This is just the version that I received. There is no dissenting opinion at all. Yes, I did understand that I'm referring to journalists that those journalists that talked about this topic. Hi, Domingos. Here is Ricardo Forney, the CFO of the bank. Now speaking about future growth of profitability and what are our leverages. So certainly Banco DO Brasil has always been and will always been leveraging loans. So we are growing our loan portfolio with good origination and good quality. But at the same time, we are also looking at the portfolio mix. This is a strategy that has been foot forward for a long time. We are executing it well. And as Fausto was saying, it's not just one management that will Secute Bet strategy. This has been a strategy that has been in place for quite some time. So this search for a better portfolio mix is something that is already bearing results. So we will continue to pursue strategy. This year, we see an important contribution towards reducing the cost of credit. So this all the work that is being done in terms of risk management. Also, I believe that our prudential strategy of last year and especially in terms of the fact that we are being cautious in terms of origination is already bearing results. I think we can get good results in terms of credit our credit portfolio. Expenses, I mean, the bank has always had a very rigorous control of expenses. The banking industry is faced with an additional challenge because When the paradigm changes, the way you serve your customer changes as well. And this brings about challenges for those that are controlling expenses. But I would say that our transformation pace and our efficiency is in line Or I would even say, when compared to our peers, we obtain a level of excellence in terms of our control And we intend to keep it that way. And in terms of seeking for additional revenues through data and innovation, This is here to stay. That's a strategy, an open strategy of the bank. It's part of our strategic planning, and we are just expediting and accelerating that. Its organic growth and sustainability not only in regards to the generation of more results, but this emphasis of ESG and all of its different aspects On the E aspects, I mean, Science and Sustainability, we have large program to expand the use of renewable energy with savings, And this is quite important. There in the physical world, A lot of work has been done in that regard. I think this is the emphasis we're giving and Fausto Talked about that also. He talked about that when he addressed the employees of the company, and the results of the Q1 are already given signs of these indicators. Good luck to the new team. Our next question from Carlos Gomez from HSBC. You may proceed, sir. Mr. Carlos Gomez from HSBC. You may proceed. Yes? Good morning. I have two questions. First, we noticed an increase in net worth in the quarter from the pension funds and healthcare. Do you see the possibility of reducing the risk or the volatility of prezi in the bank in the long run? And the second question, because I know that you were involved with Sarbanes Oxley. Would you consider an ADR program or going to the New York exchange in the future. This is Daniela Maria. Let me just answer The first part of your question about actuarial, we do have an actuarial effect, which is mark to market, but this involves several effects. In the case of the pervious benefit plan, You have to look at the curve because you have to discount the liabilities and you have also to look at the behavior of assets. The behavior of assets, Here you have a concentration in some of the things that the funds have been tend to reduce. By reducing it, Then you minimize the impact. But now the effect of the curve, this is a fact. The way to manage that is by creating October 1st as we have done it and this is how we monitor that. Daniel, would you like to answer the second part of the question? Sure. In terms of ADRs, we have ADR level 1 and the decision to go ADR Level 2. I mean, we are monitoring the market, but we don't have anything already defined in that regard. The important thing is to follow the best practices. And if you look at the best practices adopted in the New York Exchange or Starbucks and all the others. This is what we do. Perfect. I would just like to add to what Daniel said. So when the bank made a decision back then to do some internal work to adjust to all of the required practices in a regulating environment. As the one in the U. S, we hired a consulting company. They worked with us for 2.5 years back then in an attempt to improve the governance standards of the bank. And I was the leader of their project representing Banco DO Brasil. So we had to do a lot of work to comply with the very high standards of governance. There were several meetings from the strategic committee, and there were many tests in our internal controls, and this is now carried out by the person in charge and we want to ensure the integrity of the figures that appear in our income statement. The important thing is that the bank has been adopting these practices since then. And the decision to go to Level 3 in the U. S. Market is still a decision that depends on further analysis on the market momentum. To date, We don't have anything to tell you at this moment about the subject. Carlos, I hope we're able to answer your question. Yes, yes, you did. You did answer it. In terms of ADR, It depends on the market. Maybe in the long run, don't you think it would be better for the bank to be In the same area where all the other Brazilian banks are, this is a point. We have a very diversified base of investors. We have over 870,000 investors. So in fact, The fact that we are not listed in the New York exchange, I mean, this is not an impediment because We also have a very large base of foreign investors, but it's important that we look at the best practices. This is a process that we look at. We wanted to bring those best practices into the bank. And even though we're not listed, we comply with them Only follow them. Okay, thank you. Titic Filabate, Goldman Sachs. He asks, Provisions are lower than the annual guidance. Does this mean that provisions should go up over the year? Or are you going to decrease the guidance for provisions and what will it mean to the bank? Should it start here? This is Ricardo Forney talking about the guidance for expenses provisions. I think we have already talked about that, but provisions for this quarter were quite lower than the guidance. And looking ahead and considering all the uncertainties that have already been mentioned in this call, We believe that in the second and the third quarter, mainly our retail customers. And most of the forbearance portfolio will be paid in the second and the third quarter. And then we will see how much is risk and how much is increased delinquency because the prudential provisions that we built were to be proactive regarding this moment. We are optimistic, but we are conservative at the same time in terms of the future evaluation regarding our provisions. So the expectation of the guidance is in the lower part of the range regarding provisions. And Ultradias Biar. This is our expectation for the year. If we are to evolve in some of the ROE. And if we have good news about that, we might in the future. Have this situation of provision We'll be affected by the fact that the risk will become more clear to us, And we will have higher results and lower provisions, but the guidance is maintained because it's too early for us to review it because of the risks and uncertainties that we still have. So we are still in a scenario of pandemic. So the higher risk has not disappeared yet, but we see the second half of the year with a higher activity than the first half of this year. So I think this is the basis for us to keep our guidance with a degree of optimism visavishigher ROE and Lower Provisions. Our Q and A session has come to an end, and Mr. Fausto Ribeiro will come back and make the closing remarks. Thank you very much for participating in our call. And I hope we have been able to answer objectively all your questions. And without trying to avoid any questions. And I hope we have been able to clarify All the teams regarding the variations in our balance sheet and our Investor Relations team is available to you at all times should you still needs some further clarifications. Thank you very much, and have a good afternoon. Banco DO Brasil conference call has come to an end. We thank you for participating, and the material used interest call is available at the Investor Relations portal on the Internet. Thank you very much for participating. We wish you all a very good day. Thank you.